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Thursday, June 9, 2016

Russia out of деньги!

Checkmate:

"Medvedev was caught on camera telling an elderly woman in Crimea, a region annexed by Russia from Ukraine in spring 2014, that there was "no money left" in Russia's budget when he was asked why the state pension of 8,000 Russian rubles a month (around $125 a month) was not higher given the rising cost of living.

"There just isn't any money now. When we find money, we'll make the adjustment," Medvedev replied to her..."

Medvedev's (in)famous: "There is no money left! Bye!" on the heels of Russian oligarchy driving the prevalent... https://t.co/dWAlOuXtE1

49 comments:

This redounds on Putin too, since the president appoints the prime minster with the approval of the Duma, and he can sacks the PM with the approval of the Duma.

Btw, Putin already explained (correctly) that given its inflation pressure that Russia is presently under, indexing pensions to the inflation rate would be economically unwise since it would undercut inflation control.

Inflation in Russia did rise to about 16% after the float, IIRC, but now it is down under 10% with some estimates at 6-7%. The cb is aiming at 4-5%..

Yes and no. This is not the result of a theory as much as "expert thinking." Low and stable inflation is assumed to promote business confidence and balance saving and investment, thereby promoting growth without overheating or lapsing into disinflation.

Financial terrorism. The US got its lackeys to push down the price of oil. Even Saudi will be broke within a few years unless they out their prices back up. They are taking big risks because there is too much to lose: The loss of the petrol dollar and market forces sinking the bankrupt US into oblivion.

The US can't win the capitalist game, so it uses it enormous military instead, all paid for by petrol dollars. The con racket.

Not to worry, Angela Merkel is out in the news wires this morning talking about European economic unification from Vladivostok to Lisbon again. That'll fix the munnie problems for Medvedev. She loves to fan the flames and keep the Russian bloggers amused with a few choice words.

This is win-win for everyone but the US. It would end US economic dominance and severely undermine the importance of control of the sea, which has been the basis of empire and the reason for navies. Needless to say, the US will continue throwing everything possible at it. This is one objective of the cordon sanitaire from the Baltics to the Black Sea. It's a US-built "iron curtain."

Bob to translate this word correctly into English it would have to be a figure of speech derived from the name of the old pagan female form goddess (Juno) in her role as protectress of funds... whose name in the Roman pantheon was 'Moneta'...

If that is not where the Russian word comes from, I'd assume it has a different meaning than the English word 'money'....

Wittgenstein:

[Philosophical problems] are, of course, not empirical problems; but they are solved through an insight into the workings of our language, and that in such a way that these workings are recognized -- despite an urge to misunderstand them. The problems are solved, not through the contribution of new knowledge, rather through the arrangement of things long familiar. Philosophy is a struggle against the bewitchment (Verhexung) of our understanding by the resources of our language. [Ludwig Wittgenstein, "Philosophical Investigations," 1953]

so to try to attack this problem from other than a technocratic perspective (which is the realm I was trained in...) like from a philosophical perspective you have to investigate the actual language...

So from a technocratic perspective you use Calculus functions within Systems Theory but not everybody is technocratic.... so you can probably Judo this thing from a Philosphical perspective which how you do that angle of attack is thru the language... which is hard as there are many languages which compound the problem...

That's why you need to develop a function with the risk free rate as a variable and examine derivative action of that function in order to make predictive statements.... Or else you have to admit you are doing trial and error...

I suspect they are doing trial and error at 4-5% instead of doing it at 6-7%.

Then there is also targeted deception. Nabiullina may be OK with 6-7%. When central banks speak they are aiming at nudging financial and economic sectors. It's even called central bank jawboning. Jawboning s all about expectations and confidence.

Russia is already at about 6-7% now according to some analysts previously linked to at MNE.

That's one. Asymmetries is another — old boy networks is another, endowments, etc.

The assumption of microfoundations that economic agents are homogeneous as rational utility maximizers is hopelessly naïve wrt to societies.

In systems, relationships rule. Relationships in systems are networks and they have a range of effects depending on the type of relationship. The relationships varying in being positive, negative and neutral in the system wrt elements, subsystems and the system itself. It's complicated, and where there is also complexity, there may be emergence, hence, unpredictability owing to unknown unknowns that are in principle unknowable ex ante.

The Russian word "деньги" (pronounced den'gi, with a soft, palatal n), is the pural form of the singular noun деньгa (den'ga)and simply means "money". It is a countable noun, but in modern Russian only is is only used in the plural; the singusar is archaic, medieval.As regards etimology there are two possible suggested origins: 1. From the old Turkic "tenge", which used to be a small silver, and later copper coin. The coin was widespread in Central Asia, and circulated as far as ancient Persia and Greece.I personally prefer the second possible origin - 2. From the Khazar word "tamga", meaning "stamp", "seal", or "sign". Now, Khazar is extinct, but there is a modern day Bulgarian word "damga", with exactly the same meaning as the Khazar one. Khazar and Old Bulgar were from same language family, Western Turkic. Bizzarely, modern Bulgarian is a Slavic language, just like Russian.Elvira Nabiulinais a ultra-orthodox neo-liberal monetarist. The magical 4% inflation target is just a magical number, produced out of thin air. She and the Russian CB have never explained its mysterious origin. However, this is just the short term goal - the declared longer term target is 2%, just like any other modern day orthodox neo-liberal CB in the world. Again, no need for any justification, etc. And by the way, they aim at a budget surplus in a couple of years time, given that their current deficit is about 4.5% and insufficient to take them out of recession. Idiocy rules in Russia, just like pretty much anywhere these days.

Elvira Nabiulinais a ultra-orthodox neo-liberal monetarist. The magical 4% inflation target is just a magical number, produced out of thin air. She and the Russian CB have never explained its mysterious origin. However, this is just the short term goal - the declared longer term target is 2%, just like any other modern day orthodox neo-liberal CB in the world. Again, no need for any justification, etc.

I don't think it is mystical other than in the sense of not being modeled formally.

Central banks operate under the assumption, principle really, that their mission is price stability. Generally, that is their sole mandate although the Fed has a mandate of promoting growth consistent with full employment and price stability.

2% is generally the preferred market cet. par. since it far enough from ZIRP to give the cb flexibility in monetary policy. Moreover, the inflation rate is an estimate and targeting zero could unintentionally undershoot and result in deflation, which is a big a bogeyman for central bankers as inflation.

I don't think it is the case that central bankers just pull these numbers out of the blue. It's what the financial and business communities prefer (cet. par.) Monetary policy fluctuates around this target based on conditions.

The difference between monetarists in general and fiscalists is that monetarists in general rely on interest rates are the primary policy tool for influencing economic conditions. Fiscalists disagree, pointing out that there is no theory that holds generally. They also argue that fiscal policy is a superior tool since it can be tightly targeted and works quickly, whereas monetary policy is a shotgun approach that works slowly.

Russia's situation was complicated because it involved both monetary inflation owing the the float and also to supply shortages owing to a=sanction and counter-sanction, and the delays involved in import substitution.

All in all Russia did pretty well but could have done better with a Post Keynesian or MMT economist in charge.

It's also necessary to remember that the Russian economy is quite different from that of other countries of comparable size. It is still making the transition from the command economy of the USSR to a new Russian economy that will combine elements of the previous system with liberalism after the disastrous crash introduction of liberalism under the Harvard boyz that resulted in mafiosi and oligarchs running the place and nearly destroying the country.

The other thing to take into consideration is that while we might do things differently looking in, the people in charge there have enormous issues to deal with and little time and space. They are being as cautious as they can in approaching a situation that has little precedent and they are feeling their way along.

I'm not referring specifically to Russia here, but how can a full employment policy be implemented and remain compatible with a 2% target? With price and wage controls?

I don't recall Bill Mitchell claiming that a buffer stock of employed would be able to hold inflation to within 2%. He didn't specify a number. In the case that a NAIBER could not meet that all important target, what will the central bankers advise us to do?

In an imperfect world, something's got to give. Some part of the orthodoxy will have to be discarded.

I'm not referring specifically to Russia here, but how can a full employment policy be implemented and remain compatible with a 2% target? With price and wage controls?

The problem is lack of integration. Central bankers are directly responsible for the currency and only indirectly for the economy including employment. Central banking is chiefly about maintaining the value and stability of the currency domestically (controlling inflation) although they also influence the exchange rate even though that is supposedly a free float.

The have a difficult enough time doing this alone without being concerned with the state of the economy and employment rate, too. they just don't have the tools for that since there are many factors other than interest rates involved.

So the thinking of central banks is chiefly about a low stable inflation rate "cet. par," that is, depending on conditions. When the economy is cruising and inflation is low an stable, no problem. But when the inflation rate starts increasing, then central bankers get concerned,

They view the chief reason for goods inflation as rising wages. So they raise the interest rate to cool the economy and wring out some inflationary pressure by bringing about layoffs, which reduce wage pressure. They are supposedly guided in this by the natural rate of interest, employing NAIRU and Taylor rules.

It's voodoo, but this is the convention in central banking because they haven't come up with anything better and DSGE models are impressive looking. It fails were most needed, at the turning points. Economies don't run under cet. par., and neither do they tend to equilibrium at least in the short run. Monetary policy setting quantity failed. Now monetary policy using price (interest rate) is also failing.

So the answer seems to be "helicopter money," that is, fiscal policy run by the central bank as "monetary policy."

There is already concern that if the cb can inject munnie directly into the economy, then it also would need some way of withdrawing it. while I haven't seen it mentioned yet, the way to withdraw munnie from nongovernment is taxation. Is the central bank to be given tax power, too?

This just has not been thought through from the systems POV.

I don't recall Bill Mitchell claiming that a buffer stock of employed would be able to hold inflation to within 2%. He didn't specify a number. In the case that a NAIBER could not meet that all important target, what will the central bankers advise us to do?

The MMT economists are OK with a higher inflation rate in order to maintain full employment with an MMT JG. They don't see moderate inflation as anything like the socio-economic problem that unemployment is.

The chief reasons central banking was created were to issue the currency, serve as the fiscal agent of government, and manage the banking system, including the payment system by providing liquidity as lender of last resort. Central banks were also charged with regulation and oversight of the banking system.

So at least some MMT economists recommend setting the interest rate to zero permanently, providing unlimited liquidity to solvent institutions and manage the payment system as the chief responsibilities of the central bank. If the cb is tasked with bank regulation, then it should regulate from the asset side. The currency should be allowed to float freely. Monetary policy should be replaced by fiscal policy.

I agree with you analysis and that lack of integration is a problem. However, I am getting the impression that the mandate of the central bank is almost always given precedence. This could result in a lack of integration as other concerns are more likely to be brushed aside.

Thanks, Tom Hickey - I wholeheartedly agree with pretty much everything you wrote, it's always a pleasure to read your posts posts. I am also a big fan of Bill Mitchell :-). Just a few details with regards Russian CB and Russian economy generally.1. Russian CB DEFINITELY has a dual mandate (inflation control and low unemployment), quite similar to the FED's, and unlike the ECB. They just seem to deliberately ignore/neglect the second part, which confirms what your thoughts.2.At 5.6% currently, Russia has a very low unemployment, especially compared to the EU ; it is even a bit lower than that of the US right now, but roughly equal. Perhaps this has made it easier for the CB to ignore part of its mandate. Traditionally, however, the Russian society and the Presidency are very sensitive to a rise in unemployment. So the CB are forced to tread carefully and not gett too extremist.3. I overstated their budget deficit - it may turn out to be significantly lower than 3%, depending on a number of factors - the problem is that they (consolidated government) don't seem to understand that it is mostly endogenous and necessary at this point. Thus, they think it is evil and must be eliminated. Thus, their plans are for a balanced budget first, then surplusses. They are their own worst enemy, due to ignorance. An enlightened CB governor, such as, say, Marriner Eccles, plus a Russian Lochlin Currie would start a Russian economic miracle in no time.3. Comparisons to Venezuela are completely utterly false. Russia actually has a VERY diversified economy and produces pretty much everything itself, from ultra high-tech stuff (and I don't mean only weapons), all the way to the whole range of consumer goods. Its EXPORTS are not super-diversified, but the ECONOMY is. In fact very few countries globally have diversified exports. It is nothing like Venezuela. It is also completely self-sufficient regarding natural resources - ALL of them. With a bit of effort, they don't have to import anything. In that it is unique, globally. I guess, only the US comes close. The problem is, for a long Russia just could not be bothered to produce at capacity - with the high price of oil&gas it was much easier to import whatever they needed. This is quickly changing now, due to sanctions. Agriculture, for instance, is booming.

Regarding the lowering the deficit toward balance and eventually creating a surplus, I assume that the people in charge would rather increase exports (external balance) rather than the deficit (government balance). Russia is shifting from the predominance of extraction to agriculture and industry (including arms). This rebalancing seem to be going well. Given its endowments, Russia is well-suited to being an export-led economy like Japan, which has almost no natural resources.

Import substitution is also successful according to an analysis I linked to recently. This will go a long way to a moderately priced abundant consumer economy. Consumption need not suffer due to exports. Russia is in the enviable position of needing immigration to improve demographics since it has a relatively small population for its size and a relatively low birth rate, too.

Russia has huge potential and the challenge now lies in managing it, on one hand, and reducing drag on the other (vested interests, bureaucracy, corruption, legal system). But these are issues that affect all countries. The leadership seems to have realized this and is addressing it as quickly as possible without creating dangerous waves.

Excellent points. The NORMAL state of budget balance for Russia would be an (almost) constant surplus. The current state should be viewed as abnormal, due to extremely low price of energy resources and sanctions.The demographics are improving, but as you say they still need to import labor (immigration). If it weren't for immigrant labor, mostly from Central Asian countries and Ukraine, Russia would actually be close to the MMT "holy grail" unemployment of 2-3% or even less :-)And, yes, because of the fast and forced re-balancing/restructuring they did hit some supply-side bottlenecks, some of them verging on the absurd (buckwheat, salt, fish, etc.). Russia is still recovering from the liberal Chicago-inspired devastation of the 80s and 90s and the associated catastrophic loss of productive capacity.They COULD aim for export-led surplus, and this seems to be the preferred choice of the government. The question is it worth it. Becoming an export powerhouse will be problematic for geopolitical reasons - Germany, Japan, South Korea, etc., even China were allowed to, and even actively supported on this path by a benevolent US, the global hegemon. This will not be the case with Russia - it will be actively opposed. So a growth strategy based on internal consumption/demand may be easier to achieve...If properly managed economically, Russia could become very prosperous, even wealthy country in a relatively short time. But then, they do have the habit of messing up their economy for no good reason...My impression is that the hardcore neo-liberals are such as Kudrin are regaining influence, and this does not bode well...

I think that Russia intends to aim its exports more at non-Western countries. Russia and China are very complementary economies, for instance. India, too. These are very large markets and Russia is actively cultivating them. Russia is also active in Africa and Latin America. The New Silk Road will greatly facilitate this development.

Bob, Tom, Daniel Tanev - Bob: I'm not referring specifically to Russia here, but how can a full employment policy be implemented and remain compatible with a 2% target?Consider "How can a mass unemployment policy be implemented and remain compatible with a 2% target?" The MMT answer would be: This question is harder to answer than the above one, but nations quite often manage to attain the harder goal in practice. So why worry about attaining an easier goal?

For the MMT / common sense view is that full employment (& low interest) is disinflationary, not inflationary, and that the more the employment is targeted at the unemployed, the truer this is - that a JG pool is a better buffer stock than a reserve army of the unemployed. See, for instance, Wray's claim in Understanding Modern Money that for a given level of inflation control, surely the JG pool would be smaller than the reserve army. Unemployment is inflationary- Mosler says this once in a while. There is some econometric work by Olivier Giavannoni, who studied under Parguez, that the long term picture for the USA post WWII displays this. (People forget that there was stagflation in the Eisenhower era.) As Bill Mitchell points out the whole world basically had full employment policies, which were abandoned in the 70s (Full Employment Abandoned). But the subsequent era where inflation control was de rigeur - did not control inflation any better at all.

The WWII era in the US & the UK saw remarkably intelligent policies and remarkable success in controlling inflation. Dudley Dillard's 1940s book on Keynes is great on this. He observes that the basic tendency of capitalist economies is deflation during peacetime, inflation during war time. I might add that this has been obscured because so much of the postwar era, especially in the USA has attempted a permanent war economy.

Finally, Mitchell & Wray have some blogs here and there that suggest standard (or nonstandard) tools - wage and price controls, even interest rate hikes - could be used. But the effect would not to cause unemployment, just to put more people on the JG, which might (nearly) disappear in a bubblicious inflationary boom era.

Your position is that the two are compatible, which is great. Smiles all around :)If inflation did rise above 2%, at what point might it be considered "bubblicious" ?I would prefer the use of non-standard tools in place of keeping people unemployed, with its attendant social costs. Central bankers and the orthodoxy apparently disagree.

This is the MMT position, not just mine. A phrase that several of the "top-enders" have used is that "the Job Guarantee turns the Phillips curve on its head." My position would be that the MMTers are being more academically careful & cautious than many realize - that inflation being a problem is even less of a risk than the leading MMTers say - particularly in the USA, which works hard to make its spending wasteful, destructive and stupid.

One sign of bubbliciousness would be a JG pool disappearing, there are many other signs of it - increasing private debt, declining savings, irrational exuberance - nobody can ever get these things perfectly right. Even defining "inflation" is somewhat arbitrary, much harder even theoretically than defining and measuring unemployment. Which is why it is not crazy to have some loose positive inflation target.